The proposed 6 per cent levy on online advertisement revenue of foreign companies will "severely raise the cost of doing business" for Indian tech startups, industry body IAMAI said today.

Considering that the incidence of 6 per cent levy will be passed on to the advertisers by the ad platforms, the total burden to SMEs and tech startups on account of equalisation levy would be an additional burden of Rs 429 crore, a massive hike of nearly 50 per cent, it added.

The proposed 6 per cent levy on online advertisement revenue of foreign companies will “severely raise the cost of doing business” for Indian tech startups, industry body IAMAI said today.

“Tech startups are already paying 14.5 per cent service tax to use these ad platforms, which amounts to an estimated Rs 906 crore of taxes to government. With GST implementation, the tax rate is likely to move to 18 per cent bringing more taxes to the government from this segment,” Internet and Mobile Association of India (IAMAI) said in a statement.

Considering that the incidence of 6 per cent levy will be passed on to the advertisers by the ad platforms, the total burden to SMEs and tech startups on account of equalisation levy would be an additional burden of Rs 429 crore, a massive hike of nearly 50 per cent, it added.

“This will raise the cost of operations substantially,” it said.

In his Budget speech, Finance Minister Arun Jaitley had said payments of over Rs one lakh a year for online advertising to “foreign ecommerce companies” without permanent establishments would attract a levy of 6 per cent.

The levy was brought in to get foreign internet companies to pay taxes.

“Prima Facie it looks impractical and unreasonable that to collect additional revenues of Rs 400 crore, the government is ready to hurt the start-ups,” IAMAI President Subho Ray said.

He further said: “What is mistakenly being called Google Tax will turn out to be a levy on Indian start-ups.”

IAMAI said this provision of the Finance Bill has its genesis on a consultation paper by the Central Board of Direct Taxes (CBDT).

“India will stand out like a sore thumb, if the government doesn’t withdraw this proposal or figure out a clear mechanism whereby the asessee will not pass it on to the users of the platforms,” Ray said.